Apple Goes From Growth To Value Company In 6 Months

At 37 years old, Apple has graduated from fast-growing wunderkind to mature, dividend-paying firm.

Without its legendary father, the late Steve Jobs, Apple (AAPL) is facing life as a grown-up. No longer a pirate, it's become the navy. With its massive scale, slowing sales growth and declining profit margins, Apple late Tuesday heeded calls to distribute more of its cash stockpile to shareholders.

Growth companies typically invest profit back into the business, while mature companies give cash back to shareholders. Apple is now the latter.

Apple went from growth company to mature value play in the span of six months, ISI Group analyst Brian Marshall told IBD. But he says returning cash to shareholders makes the most sense for Apple, which has been averse to making large acquisitions.

Apple more than doubled the three-year capital return program it initiated last August. It now expects to return $100 billion to shareholders through stock buybacks and dividends by the end of 2015, up from $45 billion previously. It raised its stock repurchase program to $60 billion from $10 billion. And it raised its quarterly dividend by 15% to $3.05 a share.

The company described its stock buyback plan as "the largest single share repurchase authorization in history." It also said its annual dividend payments of $11 billion will make Apple one of the largest dividend-paying companies in the world. The stock will yield an annual cash return of 3%, which is likely to attract value investors.

"We believe so strongly that repurchasing our shares represents an attractive use of our capital that we have dedicated the vast majority of the increase in our capital return program to share repurchases," Apple CEO Tim Cook said in a statement.

Apple plans to fund the buyback and dividends in part by issuing debt, which it sees as a more attractive alternative than paying taxes on repatriated overseas profit.

Apple ended the March quarter with $144.7 billion in cash and short-term and long-term marketable securities, up $7.6 billion from the December quarter. About 70% of Apple's cash and investments, roughly $102 billion, is banked offshore.

Using debt to pay for its stock buyback and dividend plan might make financial sense, but it "sends the wrong message," said Global Equities Research analyst Trip Chowdhry. If Apple wanted to be a good corporate citizen, it would pay the taxes on the repatriated foreign profits, he told IBD. Those tax dollars pay for government services and infrastructure, including schools and education, things that benefit Apple, Chowdhry says.

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07/31/2015 08:02 AM ET

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